While many observers ascribe the weakening of the Iranian rial in recent months to the psychological impact of increasing US pressure on Iran, the currency crisis has domestic roots, too. Indeed, the partly privatized Iranian economy has given birth to a web of interest-driven relations between those in power and those with wealth.

Since late 2017, when the drop in the rial’s value first began accelerating, the administration of President Hassan Rouhani has desperately tried to control the whereabouts of billions in hard currency earned by major quasi-state exporters. Their wide profit margin is guaranteed by incentives they receive from the government. Yet these same companies act based solely on their own interests, which are entangled with the interests of some policymakers.

Iran’s currency market was at its most volatile late last month, as Rouhani took center stage at the United Nations General Assembly session. On Sept. 26, the rial hit an all-time low of 190,000 to the US dollar. Although it has strongly rebounded to around 140,000 rials in recent days, the reality is that the national currency has lost more than two-thirds of its value in the past year.

In April, after the exchange rate for the US dollar jumped to 60,000 rials, the Rouhani administration tried to enforce a fixed, unified dollar rate of 42,000 rials, outlawing any trade beyond this rate. In August, when coercive measures failed to thwart the booming black market whose dollars were fed in part by those receiving it at the lower, official rate, the Central Bank of Iran (CBI) introduced a secondary market known by its Persian acronym NIMA, which the government introduced as a pilot program in February.

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Exporters — including petrochemical companies — of commodities categorized as “non-oil products” are supposed to offer foreign currency generated from exports in NIMA for importers to buy at mutually agreed rates. When NIMA officially came on stream Aug. 7, the dollar was listed at 89,500 rials. Although this was considerably higher than the official rate, the booming black market made arbitrage between the different rates highly profitable.

Indeed, CBI Governor Abdolnaser Hemmati on Sept. 24 said non-oil exporters had only entered $3.8 billion out of $27 billion in hard currency revenues into NIMA since March. He said 80% of this amount was generated by petrochemical companies — Iran’s top non-oil exporters — whose financial affairs have been widely criticized in recent months. These companies are referred to as the private sector, even though their shares are owned by state investment companies and their decision makers are appointed through lobbying by the government, the parliament and third-party individuals.

For instance, Tamin Petroleum and Petrochemical Investment Company (TAPPICO) and Civic Pension Fund Investment Company (CPFIC or Saba Energy) are among the main stakeholders in the Khark, Fanavaran, Amir Kabir, Jam, Persian Gulf, Ghadir and Marun petrochemical companies. These investment firms are in turn linked to the Social Security Investment Company (SHASTA), whose board is appointed by the minister of cooperatives, labor and social welfare. Of note, the recent impeachment of former Minister of Labor Ali Rabiei was reportedly influenced by lobbyists seeking managerial positions in companies affiliated with SHASTA.

“Petrochemical companies, steel companies and [other] major factories were initially established through state investment and they later became privatized,” prominent Tehran-based economist Hossein Raghfar told Al-Monitor. “In fact, those in power sought their own interest in these privatizations. They became the owners of massive assets. Therefore, they guide economic policies based on their own interests. They often stay in the shadows and pursue their agenda secretly.”

The conflicts of interest arising from these dynamics have become more common in recent years, Raghfar said. “We increasingly see that individuals who are in the government — the public sector — are simultaneously active in the private sector as well. … We see an alignment between those in power and the private sector,” he told Al-Monitor. “But these [firms] are not inherently the private sector. They are a combination of private and public sectors, or, you could say, they are neither private nor public. They are quasi-state. When the government wants to be held accountable they act as private firms, and when they want to benefit from state incentives they become state-owned.”

The main export-oriented petrochemical firms are receiving substantial government subsidies for their feedstock, reaping soaring profits. To maintain their interests, these companies are now resisting calls by Oil Minister Bijan Namdar Zanganeh to reduce the government subsidies given the rise in their profits due to the weakened rial.

Meanwhile, the lucrative business models of petrochemical companies have attracted major conglomerates headed by powerful — and often conservative — political appointees. For instance, Astan-e Quds Razavi, the most wealthy religious foundation in Iran, has recently been planning to invest in a new petrochemical firm. Astan-e Quds Razavi is headed by Ebrahim Raisi, a former judiciary official who was appointed to his post by Supreme Leader Ayatollah Ali Khamenei, and who emerged as the conservative challenger to Rouhani in the 2017 presidential elections.

Before the test launch of NIMA, petrochemical companies had to sell their foreign currency earnings to the Central Bank at the official exchange rate, Raghfar told Al-Monitor. But since the weakening of the rial forced the CBI to establish the secondary market, most of these businesses started to funnel their earnings to the open market, he said.

This has led to a supply shortage in NIMA, pushing importers’ currency demand to the open market. “We haven’t been able to receive dollars and euros through NIMA,” an importer of ceramic industry raw materials told Al-Monitor on condition of anonymity. “We usually buy our euros at black market rates.”

NIMA was designed to give the CBI a chance to track the flow of foreign currency among exporters, importers, banks and trading offices. Yet, despite clear instructions, it rather shows the Central Bank’s inability to steer importers’ currency needs toward the secondary market rather than the open market.

If this dynamic continues, consumer prices will increase in pace with the open market exchange rate. The administration fears the return of high inflation amid increasing discontent over the economy, which in turn appears to be impacting the policies of the United States and its regional allies toward Iran.

In this vein, Rouhani’s Sept. 10 remarks are of particular note. Criticizing semi-state exporters’ resistance to compliance with CBI instructions, and referring to this as “treason,” he said, “Part of the volatility in the currency market is due to external factors. But I declare as president that part of the volatilities has domestic reasons. …How much of currency obtained via exports has remained [for the CBI]? … Should we blame the US and Israel for this as well?”

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Saeed Jalili is a Tehran-based independent journalist. He has written for Al Jazeera, Financial Tribune and newspapers inside Iran, with a focus on the economy, politics and culture. On Twitter: @sjalilis

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